An Assessment of the Existing Relationship between Corporate Financial Performance of Public Companies in the UK and their Contributions towards Corporate Social Responsibility
Abstract
The intentions of the researcher in this project were to examine the existing relationship between corporate financial performance of public UK companies and the impact this has on CSR. In evaluating this relationship, the profitability, liquidity and leverage attributes of the public companies was examined as independent variables whilst CSR was assessed as the dependent variable. The CSR expenditure of the company was estimated based on the sustainability reports and annual reports providing the main sources of data in this quantitative research. Analysis of this data is done using Stata with models of regression employed in studying the relationship between financial performance and CSR. The results obtained indicate the presence of a negative statistically significant relationship between CSR as a dependent variable and profitability and leverage as independent variables. Studying CSR and liquidity on the other hand, yielded to a positive and statistically significant relationship. Evident is that corporate financial performance of public UK companies contributes to CSR activities.
1 Chapter One: Introduction
2 Introduction
Given the growing concerns over CSR activities and their influence on company?s performance, little attention has been paid to the inverse relationship. It is imperative to assess the reverse relationship between the two to reveal the impacts that company performance has on the CSR activities that the company engages in. CSR brings several advantages to companies including their competitive advantage, thus influencing performance. Regarding mutual benefit to public companies, participation in CSR-related activities has led to growth in profitability, which is a measure of performance. Also, companies engaging in CSR-related activities are considered good corporate citizens (N‚ron & Norman,ÿ2008). N‚ron and Normanÿ(2008) examining CSR have focused on this aspect and the impact it has on performance, paying less attention to the inverse relationship yet also essential for public companies. Several tools act as measures of the ability of the company to sustain their CSR activities, including their levels of income measured through profitability, their financial leverage levels, and their liquidity prospects. Ascertaining the impact of the performance of companies on CSR is, however, an uphill task, with intensive research required considering the limited data. This research project seeks to examine the existing relationship between corporate financial performance and the contribution of public companies towards CSR activities. Background of the study is presented in the following section to contribute towards understanding the basis of this evaluation besides leading towards the development of the research problem, objectives, and questions.